American Scandal

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Every scandal begins with a lie. But the truth will come out. And then comes the fallout and the outrage.

Scandals have shaped America since its founding. From business and politics to sports and society, we look on aghast as corruption, deceit and ambition bring down heroes and celebrities, politicians and moguls. And when the dust finally settles, we’re left to wonder: how did this happen? Where did they trip up, and who is to blame? From the creators of American History Tellers, Business Wars and Tides of History comes American Scandal, where we take you deep into the heart of America’s dark side to look at what drives someone to break the rules and what happens when they’re caught. Hosted by Lindsay Graham.

Encore: Enron | Damage Control | 3

Encore: Enron | Damage Control | 3

Tue, 20 Jul 2021 09:00

Ken Lay fights to restore public confidence in Enron as the bad publicity mounts and the stock price continues to fall. Sherron Watkins is encouraged when an internal review of company practices is launched, but stunned when it appears to backfire.

This episode originally aired on September 10, 2019.

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It's August 2001, an Enron CEO Jeff Skilling has left the building. Sharon Watkins sits patiently outside Rex Rogers office. She still can't believe the number one energy trading company in America is heading into a hurricane and the captain has a bandage ship. This tells Watkins a few things. As CEO, Skilling knows what she knows and resigned because Enron engaged in illegal activity and will soon get caught. The irony of this is that Watkins herself had planned to quit the very same day. She pictured herself breaking the news to Andy fast out and marching back to her office, collecting her belongings and walking out the front door never to return. But Skilling beat her to it. The man business week put on its cover, the man who had drunkenly declared I am Enron at a company party. People don't know that the good ship Enron is about to hit the shoals and Skilling left them to face the consequences of what he'd done. He didn't try to make it right. He just ran away. The moment Skilling announces resignation, Watkins made a decision. She would do what she could to make this right. And that's why she wrote the memo. Sharon, come in. Rex Rogers is an Enron attorney, a dour pale man with thinning hair. He does not offer to shake her hand. Dusty books and paperwork are stacked all around his office and it smells like mildew. Rogers clears his throat and begins. So you're the one. I'm the one? I'm sorry. I don't think I'd please. You wrote the memo. Sorry, but around here anonymous would be whistleblowers. Don't stay anonymous for long. It wasn't hard to trace this document to you. Trust me. Rogers puts on his glasses and begins to read, Dear Mr. Lay has Enron become a risky place to work? For those of us who didn't get rich over the last few years, can we afford to stay? Skilling's abrupt departure will raise suspicions of accounting in propriety and so on and so on. Rogers looks up briefly. Register's Watkins astonishment and then continues. Sharing is resigning quote for personal reasons, but I think he wasn't having fun. Look down the road and knew this stuff was unfixable and would rather abandon ship now than resign and shame in two years and on and on. I'm incredibly nervous, you said, that we will implode in a wave of accounting scandal. Sharon was all of this really necessary. Yes Rex, I believe it was. Well if that's true, how come Rick Causey, Andy Fastout and the General Counsel don't think it's anything to worry about? Listen, Fastout has been enriching himself through LGM for years. That's a problem. When his Raptors collapse, the losses for Enron will be enormous. Lay doesn't understand the danger facing the company and frankly Rex, sounds like you don't either. I really don't. And I don't know what I'm supposed to do with all this. What I would like Rex is for you to arrange a face to face between me and Lay. I can help him. I have a plan. I know we can save the company. It won't be easy, it won't be neat, but we can do this. Enron employs nearly 10,000 people. They don't deserve to lose their jobs and pensions and maybe everything they own over this. I'm asking for your help. Please. Rodgers removes his glasses, leans in and lowers his voice. Let me ask you something Sharon. You really want to take your concerns to lay. Vincent and Elkins, Arthur Anderson, they all signed off on these deals. And the fastout is a smart guy. He knows what he's doing. He's not this crook you make him out to be. Why would he, our accountants and our law firm, risk everything they have on something only you say is illegal? Watkins just swallows. The answer is so obvious she's embarrassed to say it out loud. They did it out of greed. Watkins realizes she will receive no help from this man. He will bury her concerns under one of the moldy stacks of paper in his office and deny she was ever here. She's at a dead end. She tried her best, tried to redeem Enron and failed. Tears of frustration burn in her eyes. Rodgers takes notice when she looks down. She senses that Rodgers is taken aback. Hey, hey, Sharon, listen. I do think you're blowing things a little out of proportion, but I'm not part of some sort of cover up that that's what you're worried about. You're important to this company, Sharon. If you want to talk to Ken Lay, you're entitled to do it, and I'll arrange it. Watkins manages a tentative smile. I appreciate that, Rex. He stands. I have a meeting coming up. Can I walk you out? At the door, Rodgers stops and waits for her eyes to meet his. I need to warn you though. It may be a while before you hear anything. These are sensitive matters and things take time. Watkins smile fades. Time is the one thing Enron doesn't have. Lots of people don't know it, but autumn is an ideal time to plant. Shorter days and cooler nights create ideal conditions for the plants to get established. If you're looking to spruce up your home, proven winners color choice shrubs has an amazing selection of flowering shrubs and evergreens for planting and gardens and landscapes. With around 320 different proprietary varieties, including classics, limelight, hydrangea, and little Henry sweet spire, all of their shrubs are trialled and tested for 8 to 10 years to ensure they outperform anything else on the market. Look for proven winners color choice shrubs in the distinctive white containers at your local garden center. Learn more and find a local retailer at slashwondry. That's slashwondry. If you're into true crime, the Generation Y podcast is essential listening. We started this podcast over 10 years ago to dissect some of the craziest and most notable murders, crimes, and conspiracy theories together, and we'd love for you to join us. Follow the Generation Y podcast on Amazon Music or wherever you listen to podcasts. On Wondry, I'm Lindsey Graham and this is American Scandal. 16 years after its founding, Enron was a company sliding in extrably into a crisis of its own making. A falling stock price, the sudden resignation of Jeff Skilling and unflattering media attention all began to tarnish the company's image. As always, lying just beneath Enron's surface was the truth behind its success, widespread accounting fraud. And by August 2001, the surface was beginning to erode and the outlines of what was to come were beginning to emerge. Following Skilling's departure, Enron's leaders refused to panic. They weren't about to let the foremost pillar of corporate America collapse and disgrace. They refused to believe it was too late. But it was. This is Episode 3, Damage Control. On August 22, 2001, Ken Lay stands in his office on the 50th floor and waits for a woman named Sharon Watkins to arrive. Apparently, this Watkins woman has been at the company for some time and she has some urgent concerns to share regarding Enron. Lay thinks he's probably met Watkins before but he isn't sure. He's met many people in his life, including most of the leaders of the civilized world. He can be forgiven if he can't recall her face. Plus, he has a lot on his mind these days. He still can't get over the way Skilling just abruptly left. Lay thinks about the man he spent over a decade grooming to replace him. How could he have failed so spectacularly? And by leaving, put Lay in a very awkward position of having to fix his failures. And the day is following Skilling's departure, Lay was stuck. It wasn't as if he could simply conjure a replacement successor out of thin air. So he did the only thing that made sense. He reclaimed the title of CEO. Nothing he was looking to do so. Lay smiles as Watkins is ushered into his office. He really doesn't feel like smiling but sometimes being CEO means smiling when there's nothing to smile about. That's what Skilling could just never understand. He just went right for the jugular every chance he got. As Watkins walks in, he sees a friendly enough looking blonde woman. Lay doesn't know her from Eve. He shakes her hand and invites her to sit. Watkins gets right to the point. She tells him about LGM, the raptors, and all the rest of the special purpose entities that could come back to bite the company. She says she knows the lawyers and accountants signed off on them, but they shouldn't have. These SPE's are just an accounting shell game and the analysts and journalists will eventually figure it out. She warns Lay that this could all bring Enron down. Watkins seems like an intelligent person and she's very articulate explaining what she thinks Lay must do next to reign in the chaos. He's sure they're all good ideas but at a certain point he stops listening. All he can think about is Andy Fastdown. Lay thought the arrangement was very clear, so clear he didn't have to spell it out to those under him. After all grown men, they should all know the score. Lay, the neverland public face of Enron, good cop, skilling and fast out, bad cops when necessary, aggressive in their pursuit of money, but disciplined. Lay never asked them to do anything illegal, never asked them to do anything that could get him in trouble, he's not stupid, but apparently, fast out is. Watkins has finished talking and occurs to Lay she's now waiting for him to respond. Lay asks the only question he needs an answer to. You haven't gone outside the company with this, have you? She shakes her head and no. Lay smiles, relieved. He asks if there's anything he can do for her. She says she'd like to be transferred from fast out of vision as soon as possible. Lay responds that he'll work on it and thanks her for coming in. Watkins leaves and Lay sits back down at his desk, his day ruined. Lay hasn't been able to keep straight the details of his CFO's many schemes. They're all way too complicated. He understands the significance of Wat Watkins told him, fast out has put all of them at risk. But Lay's takeaway is not how can I fix this? That's too big a task. Instead he decides the fix is pretty simple. Fast out must be dealt with and the attorneys have to smooth this over. The next day Andy Fastout sets his crosshairs on Cindy Olson, head of human resources. He's only a foot from her desk when she looks up and realizes he's there. He comes out of her fast with one thing on his mind, punishment. But she's on the phone. Fastout watches as she smiles and holds up an index finger and mouths just to sack. It's one more second than Fastout is willing to give her. He immediately jams down the phone's hook and in the call she's mid sentence. She's shocked and upset. But he could care less. He wants an explanation. It all started with her. Sharon Watkins went to Olson. Olson sent Watkins to Rex Rogers. Rogers sent Watkins to Lay. Fastout knows Spital is reigning from his mouth but he doesn't care. How could you be so stupid he screams? Lay actually listened to Watkins and believed her. He slams his fist on Olson's desk. Thanks to her, Lay is pissed. Thanks to her, Lay told Fastout he has no shot at making chief operating officer. If to her, Lay is launching an investigation into the Raptors in LGM. Thanks to her, Andy Fastout's career is over. He looms over her and demands what she's going to do about all this. He watches her mouth just open and close like some stupid goldfish. She doesn't know how to respond. Well luckily for her, Fastout has some ideas. He tells her that she can start by seeing to it that security removes Watkins and her secretary from the building by the end of the day. He's never to set foot in Enron again and he wants their computers too. He tells her to get on it immediately or he'll be back and won't be as nice as he was today. Fastout turns and walks out, confident that Olson got the message. She's crying so it sounds like she did. On August 28th, 2001, Ken Lay is busy and determined. He's 59 but he hasn't felt this level of pure focus since his mid 30s. These days people are in and out of his office constantly as he tries to figure out where things went off the tracks. In his office this afternoon is a reporter from the Wall Street Journal. Part of mopping up his underlings mess is dealing with the press. They've got a whiff of something badly amiss. He hates dealing with journalists but that doesn't matter. This is all part of getting Enron going back in the right direction. He greets the reporter and gives him a tour of the office. He points out the many humanitarian awards he's collected over the years. He directs the reporter's attention to photos of Lay with his good friend President George W. Bush. The reporter seems appropriately impressed and Lay is pleased. They sit down and the interview begins. Well, thanks for doing this Mr. Lay. I know you must be extremely busy. Well, you're certainly right there. The CEO of an organization like this is a high pressure job, as you can imagine. Sadly Jeff's killing just did not handle that pressure well. We've had to do some course correction in his absence. I see. What kind of course correction are you talking about? Lay begins to speak but then stops himself. He thinks for a moment it considers the proper response. Well, we must restore investor confidence in our company. What can I tell you? We're at $38 a share. The reporter seems impatient and fires off the next question. Right. But concerns have been raised about the nature of certain financial partnerships involving Andy Fashtow and I can assure you that all of that has been rectified. Fashtow has no involvement whatsoever with LJM. That was an important measure to take and we took it. What have you taken further measures in this delay? A lot of people are asking questions about just how Enron generates its profits. Lay flinches. This should be easy to explain, but thanks to Fashtow and skilling, it is not. Just one more way in which they let him down. Here's what I can tell you. I can promise the world that we will as soon as possible make public detailed financial information which will give a better idea of the profitability of various businesses. Reporters nods, scribbling notes. Ken Lay is mindful to steer this interview in a positive direction. That, after all, is the entire point of interviews such as these. And I'd like you to write this down to. Yes, Mr. Lay? Enron will rebuild. I can promise you that. In fact, August 2001 was a very promising month for us. Very, very promising. We're running a tight ship here. The next month will be even better and you can quote me on. You're predicting a good September for Enron. I'm guaranteeing it. Enron is still America's greatest company and I don't see what could possibly go wrong for us in the weeks to come. When the interview is over, Lay shakes hands and flashes a confident grin. Once the reporter is gone, he sighs heavily. He senses the reporter was not swayed by his answers. Lay can't predict the future. No one. And truth be told, he has no idea if September 2001 will be a good month or the worst one yet. If you're into true crime, the Generation Y podcast is essential listening. We started this podcast over 10 years ago to dissect some of the craziest and most notable murders, crimes, and conspiracy theories together. And we'd love for you to join us. Generation Y is one of the longest stories we've ever seen. Generation Y is one of the longest running true crime podcasts out there and we are still at it, unraveling a new case every week. We break down infamous cases like the Evil Genius Bank robbery and lesser known cases like the case of Kimberly Rico. Did she actually kill her husband after they took part in a murder mystery game? We cover every angle, breaking down theories, diving deep into forensic evidence and interviewing those close to the case. And with over 450 episodes, there's a little something for every true crime listener. Follow the Generation Y podcast on Amazon Music or every listen to podcasts or you can listen ad free by joining Wondry Plus in the Wondry app. On October 17th, 2001, Ken Lai sits in his metallic gray executive conference room stealing himself for an early morning investor call. Just over a month ago, hijackers flew planes into New York's twin towers. 3,000 people died. Lai watched it on television as the towers collapsed. For a brief moment, Enron's problems seemed trivial and small, but the feeling was fleeting. Ashes from the ruins were still swirling in the air when the critics started circling Enron again. People want Lai to answer questions about Enron. He has good news for them, but even good news sounds like bad news these days. The conference call begins. Lai puts on his most optimistic voice for the investors, analysts, and executives. Enron reports a strong recurring operating performance in Q3. Recurring net income is up 35%. Earnings per share are up sharply too. That practically tells you all you need to know, they says. Adding Enron's core energy business fundamentals are excellent. There is one minor thing he needs to mention though. And he purposefully speaks quickly. We're recording non recurring charges of slightly over $1 billion this quarter. The changes are a result of a thorough review of each of our businesses. We're committing to making the results of our core energy business more transparent to investors. He explains some of the losses pertained to azurex, some to broadband, some to text stocks, and some are spread across a smattering of other assets. He's owning up to the losses, but critics don't miss the slight of hand. Those losses are kept in a separate basket so as not to sullied the bottom line. As he ends the call, he smiles and looks up. He's surprised to see a look of confusion on several board members faces. He doesn't know what they're confused about. Everything he said is positive. Enron is on an upswing. There is of course that billion dollars and expenses that came out of nowhere. But isn't it better if he puts it out there instead of critics dragging it out? This is what the new Enron is all about, telling the truth and facing it directly. Le walks back to his office and reflects upon a job well done. He's even ordered an internal review of company practices. He's asked Enron's law firm Vincent and Elkins to conduct it. It will be a review with reasonable parameters of course. He told the lawyers that they can't second guest past decisions made by Enron's accounting firm Arthur Anderson. He expressly demanded that they not conduct a discovery style investigation. Le is confident that there's simply nothing left to discover. Skilling is gone. Fast hours on ice. Everything is A. OK in Enron. And the company will be completely vindicated soon. Sharon Watkins feels ridiculous. She's sitting at the end of a conference table large enough to seek 12 people. And practically the far other end of the table are two men from Vincent and Elkins. Their face is impassive. They're the only three people in the conference room. Enron is a client of V&E. And that strikes Watkins as a slight conflict of interest. This is not how she would have conducted internal review proceedings. She tries to break the ice. First off, I'd like to thank you for conducting this investigation. I think it's important to... No, Ms. Watkins, not an investigation. A review. The distinction is important. Very well. A review. Yes, so. As we understand it, you suspect some financial impropriety of some sort within Enron. Yes, sir. That's putting it lightly. Well, elaborate Ms. Watkins. Please. We're all ears. OK. Andy Fassow's Investment Fund, LGM. Essentially, he used it to line his pockets. He often ran the fund in a manner that ran counter to Enron's best interests. Plus, I believe it's quite clear he used special purpose entities, specifically the SPE's known as Raptors, to conceal company losses. So he was deceiving investors. Uh huh. This doesn't concern you at all? Well, as we understand it, Mr. Fassow is no longer involved in LGM, so that clears up a lot. I'm not so sure that... No, I'm not sure it does, actually. Watkins feels embarrassed. She isn't cynical enough yet to believe they'd openly take Fassow's side. Fassow, who just days ago tried to have her and her assistant fired. Thankfully, that didn't go anywhere. From what Watkins was told, Cindy Olson and HR called Ken Lay and Lay made it very clear to Fassow that Watkins wasn't going anywhere. One of the lawyers continues. Well, let me ask you something. Have you seen all the legal documents on the Raptor transaction? Well, I don't think I can claim to have seen them all. That's exactly right. And how exactly did LGM pull money from the Raptor transaction? Well, that's another thing I wasn't privy to. Ms. Watkins seems like you weren't privy to much. We've reviewed some of your statements, your anonymous men mode for one. From where we're sitting, it seems like you substantiate much of your allegations with... I don't know, things you overheard at a cocktail party? Yeah, lots of rumors, lots of conjecture. Would you agree? Actually, no. I've seen the books with my own eyes, and I know what Andy is up to. I can give you several names of people who will corroborate my allegations. Yeah. We'll reach out if we require your assistance contacting anyone you might know. Watkins remembers the moment in Rex Roder's office when she nearly cried. What she's feeling now is very different. She's not even close to crying. She's just angry. These idiots care about covering their asses more than anything, and they're willing to destroy Enron in the process. Ken Lay did not take her seriously after all. Sure, he protected her from fast out, but a job at Enron isn't worth much if Lay is too scared to ensure a legitimate internal review. Ken Lay is obviously afraid of what he'll find if he looks at his own company too closely. It's disappointing, and it's sad. Do you have any questions, Mrs. Watkins? No. Thank you for your time. Andy fast out, Mrs. Jeff's killing. With him gone, fast out, surrounded by complete morons. Morons, like Ken Lay and Sharon Watkins, who Lay was too stupid to fire. Morons like these internal review suits from V&E. They seem apologetic, beg his pardon for taking up his time, but fast out doesn't want to hear it. They shouldn't even be here in the first place. He sits across from them in their little common room and lays it all out like he would to a couple of toddlers. Except everything at Enron is completely above board and always has been. All transactions, all of them, were thoroughly reviewed by Arthur Anderson, the office of the chairman and, yes, even V&E itself. Do these guys really want to know what this is all about? He'll tell them, Jeff McMahon wants his job, so he's enlisted his pawn Watkins to smear fast out so that they can take Enron over together. It's obvious. The V&E men nod and take notes. On October 16th, 2001, Sharon Watkins is back in the lawyer's conference room. They have concluded their review and would like to share their findings. Watkins braces herself for the worst and she is not disappointed. Is the belief of Vincent and Elkins that Watkins concerns a little more than bad optics for Enron? Yes, LGM doesn't look great and neither do the Raptor transactions. All these entities perform poorly and that, along with a falling stock price, will not play well in the media. But a big company like Enron will suffer adverse publicity from time to time. That's just the cost of doing business. The Man is sure Watkins that her concerns were thoroughly reviewed, but they hadn't found anything that wasn't already known. For them, it's a case closed. Watkins says it doesn't sound like they gave her concerns any real consideration at all. The lawyers point out that Enron's stock is more stable than it's been in weeks. It's held at $33, even after the company announced losses. Things that Enron are looking up. Watkins just shakes her head. She almost feels bad for them at this point. Enron must voluntarily and publicly restate past earnings. It simply did not make the money it said it did. All the market, fair value accounting, and special purpose entity manipulation is certain to catch up with the company. And when it does, people won't be asking if the stock price is holding. They will demand that heads roll. Ken Lay is in the elevator alone and going down. Angrier than he's ever been in his life. When the doors open, he heads to the public relations department. They appear to all be gathered in a single room having some kind of group meeting. But whatever they're doing, it isn't enough. Lay is here to set them straight. When he steps into the room, the PR people look up and surprise. Usually a meeting with the boss is booked weeks in advance. Lay asks if they've seen the Wall Street Journal lately. They just look back and nervous silence. Lay raises his voice. Everything he's done to get Enron on solid ground, the internal review, the financial disclosures, the interviews, none of it mattered. The two characters at the Wall Street Journal, Rebecca Smith, and John M. Schweiler are out to destroy him. Enron poses some third quarter losses, not a big deal, but the journal reporters made it a front page headline. Worst, they've put fast out under the microscope. Lay thought it was all cleared up, but Smith and M. Schweiler are claiming that fast out's relationship with LGM was unusual. They're quoting so called corporate governance watchdogs. Those people say that since LGM purchased assets from Enron, fast out should never have been allowed to run LGM while serving as CFO. The job of a CFO is to look out for the best financial interest of the company that employs him. The journal is insinuating maybe he looked out for the best interest of LGM at Enron's expense. The Wall Street Journal is pulling Enron apart. It's highlighting not just the failure of its broadband division and azurex, but the loss of a billion dollars in equity in the departure of top executives. Lay is shaking. His voice hoarse, and he adds what is quite possibly the worst news of all. Enron stock is now down to an all time low of $25. Moody's has placed the company's long term debt on review for potential downgrade. Lay deliberately makes eye contact with each and every person staring back at him in fear. He tells them that there is nothing wrong with how Enron does business. He says it's a public relations problem and orders them to fix it. Lay heads back towards the elevators, leaving the PR group behind. He's just hired a crisis management team and his first meeting with them is in five minutes. He can sense the clock beginning to tick on his career, quickens his pace. He knows that if he can't save the company within the next few weeks, Enron is finished and lay along with it. He won't let it happen. If it's a fight his enemies want, and he's about to give them the fight of their lives. On October 23rd, 2001, Andy fast out and see the Ken Lay is beginning to crack under the pressure. Lay plots into the room, sits down, and rubs the dark rings under his eyes. Fast out is not sympathetic. Lay did this to himself. Maybe if Lay had promoted fast out a COO instead of listening to Sharon Watkins, Enron would be in better shape. Misurably, Lay sits at the head of the boardroom table, set to begin another grim analyst call. The PR department has written up an official explanation regarding the circumstances that led to the creation of LGM. It all sounds perfectly logical. Ron Aston, a fat lawyer from V&E, chimes in. He proposes an edit that identifies fast out as the founder of the investment fund. Fast out can't contain himself. It was skilling he screams. Everyone just stares at him, even Lay. Fast out decides to sit down. The others do as well, and Lay begins the call. Lay tells those on the line that he's disappointed the stock price is so low, especially since things are going so well at the company. Fast out stifles a snort. Lay recites the prepared remarks regarding LGM. It was an investment fund created to counteract volatility related to various tech deals. Fast out voluntarily terminated his involvement with LGM when it became apparent that his prominent position both in LGM and Enron made some investors uncomfortable. Lay then adds that he has the highest confidence in fast out, and thinks he's an outstanding CFO. It's a polite remark, and fast out acknowledges it with a polite nod. It's his turn to talk now, and he keeps things cheerful. No one needs to worry about Enron's liquidity. Its banks still support it. Plus Enron hasn't needed to dip into the 3 billion that keeps sucked away for emergencies. Lay asks if there are any other questions. Kurt Lawner of CFSB wants to see a balance sheet. When will it be available? Lay shrugs. The next balance sheet will be available at the usual time, about a week or two after earnings are announced. Lawner asks if the balance sheet can be distributed sooner. Lay says, sure, possibly, and leaves it at that. Fast out rolls his eyes. There's no chance for that happening. Dave Fleischer from Goldman Sachs is next on the line, and he doesn't mince words. The company's credibility is being severely questioned. He appreciates that it's difficult for Lay to go into details, but now is the time for full disclosure. There is an appearance that Enron is hiding something. Make no mistake, Enron is in crisis, and Lay will need to have a conference call like this, perhaps every morning from now on, until investor confidence is fully restored. Lay holds up his hands and responds, we are trying to be as transparent as we can. We are trying to provide information. We are not trying to conceal anything. We're not hiding anything. The next person to take over the conference call is Richard Grubman. Fast out remembers him well. He is the guy that's scaling call the asshole just a couple of months ago. Grubman says that he did some calculations, and doesn't think that Enron correctly recognized all the losses taken when Azirix went belly up. Grubman says it appears Enron took a bigger hit from Azirix than it's letting on. Chief accounting officer Rick Cawsey responds, and says that it's nothing to worry about. Enron created an SPE called Marlin, designed to contain the Azirix debt, so everything's fine. But Grubman says he doesn't buy it. He's aware of Marlin, and it has no value as an SPE at all. Marlin simply does not have the financial resources required to cover the large debts generated by the failure of Azirix. Cawsey begins to respond, but Kenlay cuts him off. He tells Grubman, I know you want to drive the stock price down, and you've done a good job of doing that. But I think that's that. Let's move on to the next question. Fastile races in eyebrow. So the old man still got some fight left in him. Fastile looks forward to seeing how Lay will fare later that morning when he has to face Enron's employees. Lay enters the Houston Hyatt. The hotel's ballroom is packed walled walled people that work for him. His crisis management team proposed this. They told Lay it was time to face his employees directly, to tell them that there was no reason to panic that Enron would prevail like it always has. Such reassuring words would mean a lot coming from the founder and CEO of the company. Lay weaves his way towards the podium. He tries to make eye contact with as many people as he can, and says good morning to each of them. He's going for confident, convivial, in control. But the crowd is agitated. To Lay, they sound like a swarm of angry hornets. Lay climbs the steps that lead to the microphone and pauses momentarily. Usually at this point he be greeted with thunderous applause and a standing ovation but not today. Enron's workers sit in impatient silence. They're scared. Enron's stock is trading at $19 a share. Their retirement savings are going up in smoke. They are desperate for a reason to believe in this company again. So with a thoughtful nod, Lay surveys the crowd and begins. Good morning. There it is. Now we've got a packed house and I appreciate that. Now in any other circumstance I would probably have a few words to say to you regarding September 11th, and the many heroes that rose to the occasion on that awful day. But of course we're here to talk about Enron because just like America is under attack by terrorism, I think we're under attack. Lay holds for applause but there is none which is odd. He thought that statement would get more support. Lay motioned for Enron president and COO Greg Wally to approach the microphone. Lay smiles as Wally lists Enron's many business units and describes in detail the ways in which each unit is performing admirably. Lay takes over again. Thank you Greg. Let's have a round of applause for Greg Wally. Of course as you can see the underlying fundamentals of our business are very strong. Indeed the strongest they have ever been. But regrettably this is not what Wall Street is focusing on. A doubt is what you're focusing on either. But I want you to know that Enron has been through some tough times before. It's right. They tried to take us down in the 80s with that phony oil trading scandal. They've tried to take us down many times but in each and every case the company has come back and it has come back stronger than it was before. Make no mistake. All of us here in this room today are being tested. It's true. Will we measure up to the challenge? True character is born in time to crisis. We need to show our character as an organization. Now it's time for questions and I look like ever I've got a few up here. Enade offers Leia stack of cards with employee questions. He selects one at random. Question makes him frown but it's too late to put it back. Hundreds of people have just seen him take it. There's nothing else to do so Lei returns to the microphone and reads the question aloud. I would like to know if you were on crack. It's October 24th, 2001 and Andy fast out is fired up. Charging into Enron headquarters at 9 a.m. for a meeting with the executive committee. Lei did his best yesterday. Some bought his Enron shall overcome stick but some didn't. It makes no difference fast out though. Enron just needs to show it makes money and for that it needs Andy fast out. With fast out help Enron will reign cash again and when that happens the analysts, the watchdogs, the Wall Street Journal, even the asshole shareholders, they're all just going to shut up and go away. Money makes people have short memories. It's the only answer. It has always been the only answer. Fast out burst into the executive suite ready to talk strategy. He has ideas on how to keep Enron afloat for the rest of 2001 as well as into the next decade. He quickly takes stock of those in the room and stops dead. Greg Waley, Ken Lay and Jeff McMahon, what the hell is he doing here? They all stared him and he seized it in their ashen faces immediately. He just shakes his head, smiles, looks to the floor, then back up again. Why he asks? Lei tells him the bank to have lost confidence in you Andy. I'm sorry but our hands are tied. We have to let you go. Fast out usually tries to keep his rage and check when he's around Lei. But now he simply can't contain himself. There's no reason to hold back. Nothing to lose at this point. A single bank expressed a lack of confidence in me and I told you all about that myself last week. Now you're punishing me for being honest. Fast out looks for something to throw but there's nothing in reach. He looks at McMahon and asks, so I guess you're the new CFO huh? Well congratulations. Mockingingly he softly applauds McMahon's face. Ken Lay looks disappointed and he doesn't need to be difficult. Yet does Ken fast out replies, turning to leave. But then he stops. He's one last thing to say. I want you to know I intend to sue for $10 million. Wrongful termination. See you in court. Where you're going? You'll all be there soon anyway. That afternoon Ken Lay sits down in his office, loosens his tie and closes his eyes. He doesn't see how this day could get any worse. But then his phone rings. It's one of the lawyers, bad news. The Securities and Exchange Commission has just made an announcement. As of today, it has launched a formal investigation of Enron Corporation. From Wondry, this is episode three of five of Enron for American Scamble. On the next episode, Enron runs out of options as the Wall Street Journal works to expose the company for what it is. Resulting fallout is more devastating than anyone could have anticipated. If you'd like to learn more about Enron, we recommend the books Power Failure by Mimi Swartz with Sharon Walkins. The smartest guys in the room, the amazing rise and scandalous fall of Enron by Bethany McClain and Peter Elkide. And Conspiracy of Fools, a true story by Kurt Eichenwald. This episode contains reenactments and dramatized details. And while in most cases we can't know exactly what was in. All our dramatizations are based on historical research. American Scamble is hosted and edited and executed produced by me Lindsey Graham for Airship, sound designed by Derek Barons. This episode is written by Hannibal Diaz. Our senior editor is Karen Lowe. Executive producers are Stephanie Jenz, Jenny Lauer Beckman and her nonlopest for wandering.